The Great Tuition Fees Escape (Part 2)

Peter Ainsworth writes Part 2 for the Institute of Economic Affairs. The central flaw in our current system of financing higher education is that the third party – the Universities themselves – face no financial consequences if they fail to help their charges into careers that justify their education.

Exactly the opposite has been the case since the 2102 reforms – University incomes have risen sharply – by some measures by 20% – while the rest of the country has faced austerity and static incomes. This is what needs to change.

When the 2012 reforms were introduced the notion was that the normal charge for a course at University would be £6,000 per annum with £9,000 charged only in exceptional circumstances. It must have been envisaged that Universities could prosper on a £6,000 fee level. Nothing can now be done about the £9,250 (£9,000 adjusted for inflation) fee quoted for any course, but the government could instruct the Student Loans Corporation (SLC) to only pay, say, £6,000 to the University. The remaining £3,250 would be held back, contingent on performance. The Department of Education now has a new database, jauntily known as “LEO” (long-term educational outcomes), which tells it exactly what the incomes are of graduates of each institution. Periodically the SLC would be able to estimate the likely total repayments by University with a reasonable degree of accuracy. It could then make additional payments to each accordingly, adjusting for experience over time, up to the maximum of £9,250.

This alignment of the financial payments to the University with the actual earnings of their graduates will have a transforming effect on behaviour. Pedagogy – the science of how best to educate – will finally take its rightful place at the heart of University thinking. Careers advice and support will extend beyond leavers to support graduates for 30 years, providing further education to those who hit a rocky patch or who perform below their potential.

For the students it may not sound as good as no fees at all. But knowing that the prosperity of the institution is tied directly to them getting better jobs, so that the University is a partner in their success, should foment a better relationship than when they think of themselves as (often poorly treated) customers.

As this scheme will reduce the burden on the taxpayer the government will be in a position to tweak the present arrangements to ameliorate some of their worst features. The 3% interest charge on the loan should be abolished. It has the effect of making repayments regressive, where those whose parents can afford to pay upfront and the very highest earning graduates pay less than those earning at the next level down.

Changing how Universities are paid so that they have some “skin in the game” and their interests are aligned with those of their graduates is the only practical way forward from an impossible starting position. It offers a Great Escape from the Great Mistake that was the tripling of fees in 2012.

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